How Does General Training Increase Retention? Examination Using Tuition Reimbursement Programs

This paper examines the effect of tuition reimbursement on retention to identify the mechanism by which general training increases retention. Through tuition reimbursement programs, firms provide financial assistance for coursework taken at accredited academic institutions and represent investment in general human capital. Firms cite increased employee retention as a primary motivation for offering this program, which challenges the predictions of standard human capital theory, but supports recent developments in the human capital literature that outline how market imperfections allow firms to capture the returns to investing in general training. Using data from a single employer, this paper finds that tuition reimbursement programs have a positive effect on retention and finds evidence that the effect is driven by complementarities between firm-specific and general human capital. These results are supplemented with findings from a cross-section of employers, which is used to investigate the determinants of providing this general training program. I find that provision of tuition reimbursement is strongly related to other types of company training as well as to monopsony power (e.g. thinness of the labor market), which is consistent with complementarities between firm-specific and general human capital driving the positive effect of general training on retention. JEL: M53, J24, J63